<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to________________
Commission file number: 0-26302
VIDEOLAN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-93086
(State of incorporation) (I.R.S. Employer Identification No.)
100 Mallard Creek Road, Suite 250, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
502-895-4858
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Shares Outstanding at March 31, 1996
______________________ ____________________________________
Common stock, $.01 par value per share 13,884,498
This document contains 14 pages.
<PAGE>
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements
Unaudited Condensed Balance Sheet as of March 31, 1996 3
Unaudited Condensed Statements of Operations for VideoLan
for the three months ended March 31, 1995 and the three
months ended March 31, 1996. 4
Unaudited Condensed Statement of Stockholders' Equity
for the Period from January 1, 1996 through March 31, 1996 5
Unaudited Condensed Statements of Cash Flow for VideoLan
for the three months ended March 31, 1995 and the three
months ended March 31, 1996. 6
Notes to Unaudited Condensed Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of Operations 11
PART II. Other Information 13
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports
SIGNATURES 14
2 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED BALANCE SHEET
March 31, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,785,781
Accounts receivable 24,664
Inventories 1,253,717
Prepaid expenses and other current assets 214,453
-------------
Total Current Assets $6,278,615
Property and equipment, net 342,797
Other assets:
Patent pending applications 75,315
Notes receivable 33,800
Security deposits 29,219
-------------
138,334
----------
$6,759,746
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $606,510
Capital lease obligations-current 44,289
-------------
Total Current Liabilities $ 650,799
Long term liabilties:
Capital lease obligations-non current 35,190
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 20,000,000
shares authorized; 13,884,498 shares
issued and outstanding 138,845
Additional paid-in-capital 16,495,570
Deficit accumulated during development
stage (10,560,658)
-------------
Total Stockholders' Equity 6,073,757
----------
$6,759,746
==========
3 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
11-May-94
Inception
Three Months Ended through
March 31, March 31,
1995 1996 1996
--------------------------------------------
Net sales $ -- $ -- 50,053
Consulting revenues
----------- ----------- ------------
-- -- 50,053
-- -- 37,372
----------- ----------- ------------
Cost of sales -- -- 37,372
Gross profit -- -- 12,681
Selling, general and administrative
expenses:
Salaries 108,388 488,985 1,253,656
Compensation expense 1,125,000 -- 3,254,875
Payroll taxes 27,557 73,466 218,180
Consulting fees -- 145,556 1,016,669
Marketing cost 43,332 53,355 252,145
Professional fees 32,951 48,519 488,730
Travel and entertainment 64,344 74,902 543,816
Research and development 245,553 455,133 2,969,123
Equipment rental 23,144 20,613 159,004
Rent 14,054 33,930 152,848
Insurance 4,377 45,918 90,859
Office 29,512 39,707 214,676
Depreciation and amortization 2,071 17,945 51,334
Stock Administration Charges 10,061 10,061
Other 558 47,690 92,453
Franchise Tax Expense 5,242
----------- ----------- ------------
Total expenses 1,726,083 1,555,782 10,768,431
Other income (expense)
Interest income 9,757 68,485 203,728
Interest expense (2,356) (10,854)
Other Income 2,218 2,219
----------- ----------- ------------
9,757 68,347 195,092
Net loss $(1,716,326) $(1,487,435) $(10,560,658)
=========== =========== ============
Loss per share $ (0.16) $ (0.11) $ (0.88)
=========== =========== ============
Weighted average common shares
outstanding 10,968,498 13,855,366 11,945,063
=========== =========== ============
4 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from January 1, 1996 through March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Preferred --------------------- Paid-In Development Stockholders'
Stock Shares Amount Capital Stage Equity
--------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 13,843,498 $138,435 $16,424,980 $ (9,073,223) $ 7,490,192
Warrants converted to Common Stock 5,000 50 34,950 35,000
Employee stock options exercised 36,000 360 35,640 36,000
Net loss (1,487,435) (1,487,435)
--------- ---------- -------- ----------- ------------ -----------
Balances at March 31, 1996 $ 13,884,498 $138,845 $16,495,570 $(10,560,658) $ 6,073,757
========= ========== ======== =========== ============ ===========
</TABLE>
5 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
May 11, 1994
Three Months Three Months Inception
Ended Ended, through
March 31, 1995 March 31, 1996 March 31, 1996
----------------------------------------------
Cash flows from operating and
development stage activities:
Net loss $(1,716,326) $(1,487,435) $(10,560,658)
Adjustments to net loss:
Issuances of common stock for
services rendered 1,125,000 1,146,875
Issuances of common stock for
consulting services rendered 665,000
Issuances of common stock for
purchased research and
development 709,125
Issuances of stock options to
consultants 2,108,000
Depreciation and amortization 2,071 17,945 51,334
Increase in accounts receivable (24,664)
Increase in inventories (223,227) (433,348) (1,253,717)
Increase in prepaid expenses
and other current assets (15,172) (55,972) (214,453)
Increase in security deposits (3,558) (29,219)
Increase in accounts payable
and accrued liabilities (9,721) 261,668 606,510
----------- ----------- ------------
Net cash used in operating
and development stage
activities (837,375) (1,700,699) (6,795,866)
----------- ----------- ------------
Cash flow from investing
activities:
Acquisition of property and
equipment (14,568) (42,704) (283,470)
Patent application costs (4,452) (40,100) (75,315)
----------- ----------- ------------
Net cash used in investing
activities: (19,020) (82,804) (358,785)
----------- ----------- ------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock in private
placement 2,655,647
Offering costs (288,703) (326,263)
Proceeds from the exercise of
stock options by employees 36,000 36,000
Proceeds from initial public
offering 11,500,000
Underwriter's commissions and
expense allowances (1,449,000)
Offering costs (445,970)
Proceeds from redemption of
common stock warrants 35,000 35,000
Proceeds from notes payable 331,000
Repayment of notes payable (325,000) (331,000)
Repayment of capital lease
obligations (4,299) (10,712) (31,181)
Proceeds from bridge loans 450,000 900,000
Repayment of bridge loans (450,000) (900,000)
Loans to employees, net 35,311 (33,800)
----------- ----------- ------------
Net cash provided by
financing activities: (582,691) 60,288 11,940,433
----------- ----------- ------------
Increase in cash and cash
equivalents: (1,439,086) (1,723,216) 4,785,781
Cash and cash equivalents at
beginning of period -- 6,508,997 --
----------- ----------- ------------
Cash and cash equivalents at
end of period $(1,439,086) $ 4,785,781 $ 4,785,781
=========== =========== ============
Supplemental disclosure of cash flow information: Capital lease obligations of
$24,740 were incurred when the Company entered into new leases for computer
equipment. Interest expense paid in cash was $2,356.
6 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE A-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
VideoLan Technologies, Inc. (the "Company"), formerly know as Triple R
Industries, Inc., is a development stage enterprise incorporated in Ohio in May
1994, to acquire certain technology and the rights to a pending U.S. Patent
application for an analog video distribution communications system designed to
provide real-time, interactive video, to and from a desktop personal computer
("PC") over local and wide area networks ("VideoLan Technology"). Since
inception the Company has primarily been engaged in research and development.
In the course of its development activities, the Company has incurred
significant losses which have been funded with resources from the Chairman,
bridge loan financing, proceeds from a private placement, and proceeds from an
initial pubic offering.
Unless income from sales of the VideoLan System is obtained, the timing,
sufficiency and receipt of which the Company cannot predict, future development
and commercialization of the Company's technology will depend upon arrangements
with third parties to finance research and development projects, or the
Company's ability to obtain other additional financing on terms satisfactory to
the Company. The Company presently has no formal arrangements or commitments
for external financing. The Company's inability to obtain such financing could
have a material adverse effect on the Company's operations.
On May 23, 1994, the Company acquired the rights to a pending U.S. patent
application from L&LD Communications Consultants, Inc. ("L&LD"), which is the
Company's predecessor for financial reporting purposes and which was formed by
Vernon Jackson, a director and stockholder of the Company.
On September 1, 1994, by amendment to its Articles of Incorporation, the
Company changed its name from Triple R Industries, Inc. to VideoLan
Technologies, Inc.
Immediately prior to the close of the Company's initial public offering in
August 1995, the Company merged with and into a newly formed Delaware
corporation, VideoLan Technologies, Inc., for the primary purposes of changing
the Company's state of incorporation and increasing the Company's number of
authorized shares. Effective upon the consummation of the initial public
offering, the authorized capital stock of the Company consisted of 5,000,000
shares of preferred stock, $.01 par value per share, none of which is issued and
outstanding, and 20,000,000 shares of common stock, $.01 par value per share, of
which 13,884,498 shares are issued and outstanding.
NOTE B-ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Research and Development Costs
Research and development costs are expensed as incurred.
7 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
2. Net Loss Per Share of Common Stock
The computation of loss per common share is based on the weighted average
number of outstanding shares. All common stock of the Company issued within one
year of the initial public offering was considered outstanding for all periods
presented. Stock options and warrants have not been included in the
calculation as their inclusion would be antidilutive.
3. Inventories
Inventories consist of subcomponents necessary to manufacture the Company's
product and are valued at the lower of average actual cost or market. The
Company has entered into an arrangement to subcontract the manufacture,
assembly, testing, and maintenance of the product.
4. Cash and Cash Equivalents
Cash equivalents consist of short-term government obligations. These
securities have original maturity dates not exceeding three months. Such
investments are carried at cost which approximates market, and are considered
cash equivalents for purposes of reporting cash flows.
5. Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the respective assets.
6. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
7. Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate fair value, principally
because of the short maturity of these items.
NOTE C-PATENT PENDING APPLICATIONS
Patent pending applications consist of filing fees and certain legal costs
relating to the filing of domestic and international patent applications for the
VideoLan technology. (Reference is made to Notes A and G.)
8 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE D-PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Estimated
Useful
Life
Furniture and Fixtures $ 14,011 5
Equipment 274,251 5
Leasehold Improvements 105,868 5
--------
394,130
Less: Accumulated Depreciation 51,333
--------
$342,797
========
NOTE E-ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of:
Accounts payable $490,901
Accrued professional fees 45,400
Customer security deposits 70,209
--------
$606,510
========
NOTE F-CAPITAL STOCK TRANSACTIONS
On January 31, 1996, 5,000 warrants were redeemed for shares of common
stock at $7 per share. During February and March, 1996, 36,000 employee stock
options were exercised at $1 per share.
NOTE G-COMMITMENTS AND CONTINGENCIES
Employee Compensation
On January 17, 1996, Mr. John Haines' employment as CEO of the Company
ceased. The Company is finalizing a separation agreement with Mr. Haines. Once
finalized, Mr. Haines will resign as a director of the Company.
Effective February 15, 1996, Richard Dean Jackson resigned as Executive
Vice President of the Company. As part of his separation agreement with the
Company, Mr. Jackson is to receive $125,000 paid over a four month period,
commencing March 1996. Mr. Jackson concurrently signed a marketing
representative agreement to serve as a commissioned marketing representative of
the Company. Additionally, he was issued options to acquire 150,000 shares of
the Company's common stock at $12 per share.
9 of 14
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Patent Pending Applications
The Company's pending U.S. patent applications and pending international
patent applications claim an efficient network for the real time, simultaneous,
bi-directional transmission of voice, video, and data among a plurality of users
connected to a plurality of hubs.
Patents and patent applications involve complex legal and factual issues.
A number of companies have filed applications for, or have been issued, patents
relating to products or technology that is similar to some of the products or
technology being developed or used by the Company. There can be no assurance
that the Company's patent will afford protection against the development of
similar or related technology by competitors.
Although the Company believes that its VideoLan System and technology do
not and will not infringe on patents or proprietary rights of others, it is
possible that such infringement or violation has occurred or may occur or that
others may infringe on the Company's patents.
In the event that the Company's products or technologies infringe on
patents or other proprietary rights of others, the Company could be required to
discontinue the sale of its products, including the VideoLan System, and
redesign its product or obtain licenses. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, or that the failure to do any of the foregoing would not
have a material adverse effect on the Company. If any of the Company's products
or technologies are deemed to infringe on patents or other proprietary rights of
others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.
NOTE H-SUBSEQUENT EVENTS
During May 1996, the Company plans to open a new 9778 square foot facility
in Jeffersontown, KY. The Company will be relocating the Product Engineering
Department and the Research and Development Department from the Corporate Office
to the new facility. The manufacturing facility that is in the current
Jeffersontown facility will also be relocated to the new facility. It is the
Company's intention to sub lease its existing assembly facility. The
minimum annual lease payments under this lease are as follows:
1996 $ 40,752
1997 61,128
1998 73,128
1999 77,128
2000 85,128
Thereafter 28,376
--------
$365,640
========
10 of 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
VideoLan Technologies, Inc. ("the Company"), is a development stage enterprise
incorporated in Delaware. The Company is engaged in the continuing development
of communications products which utilize the Company's proprietary technology to
transmit and receive real time, interactive video, voice and data signals over
unshielded twisted pair copper wire ("UTP"), as well as coaxial cable and fiber,
to and from desktop personal computers over local and wide area networks. During
the second half of 1996, the Company plans to introduce and market a stand-alone
video, voice and data communications network solution (the "VideoLan System"),
its first product, through the establishment of distribution channels and direct
sales in certain niche markets. The Company will also continue to develop its
technology to enable local telephone exchange carriers, regional bell operating
companies ("RBOC's") and cable companies to provide immediate access in the home
to programming selected by customers from a remote library ("Video Services").
In August 1995, the Company concluded its initial public offering ("IPO") of
2,875,000 units, each unit consisting of one share of common stock and one
redeemable common stock purchase warrant exercisable for one share of common
stock at a price of $7.00 subject to certain adjustments based upon
anti-dilution provisions, at any time until August 10, 2000. The net proceeds of
the offering to the Company, after payment of underwriters discounts and
commissions, and other expenses of the offering were approximately $9,600,000.
The Company anticipates that the remaining proceeds from the offering should be
sufficient to fund operations until the end of 1996.
Management believes that approximately $750,000 of the proceeds of the offering
will be sufficient to accomplish the Company's marketing strategy for the
VideoLan System ($212,072 used as of 3/31/96), since the Company plans to rely
in part on the marketing organizations of the original equipment manufacturers
("OEM's"), value added resellers ("VARS's"), systems integrators and
distributors through which it intends to sell the VideoLan System. The Company
plans to minimize operating expenses by subcontracting manufacturing,
installation and field maintenance services. Additionally, it is estimated that
approximately $3,000,000 of the proceeds of the offering will be used to
purchase inventory ($763,348 used as of 3/31/96), and approximately $1,500,000
will be used during the next twelve months to enhance the VideoLan System and
develop the Company's technology for video services ($1,445,133 used as of
3/31/96). Thereafter, the Company anticipates that cash flow from the sales of
the VideoLan System and/or development contracts with RBOC's, cable companies or
other third parties will be required to finance the integration of the Company's
technology into existing RBOC or cable company infrastructures for video
services. The availability of sufficient development financing at the earliest
possible time could be a significant factor in establishing the Company's
technology, rather than a competing technology, in the marketplace. The balance
of the IPO proceeds are being used for general corporate working capital.
There can be no assurance that the Company will establish satisfactory
distribution channels for the VideoLan System or that the VideoLan System will
be accepted in the marketplace. There can also be no assurance that the Company
will enter into satisfactory development contracts for Video Services and or
that it can complete development before other technologies are selected by Video
Services providers.
Results of Operations
Three months ended March 31, 1996
Revenues. The Company had no revenues for the period ended March 31, 1996
or March 31, 1995. The Company has engaged in limited marketing of the VideoLan
System and is currently beginning to implement its marketing strategy.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended March 31, 1996 were
$1,555,782 as compared with $1,726,083 in the comparable
11 of 14
<PAGE>
period of the prior year. In the first quarter of fiscal 1995 the Company
incurred non cash compensation expense of $1,125,000 relating to the issuance of
common stock to an employee. Salaries, consulting fees and related payroll taxes
increased by $572,000 to $708,007 in the first quarter of the fiscal 1996
compared to $135,945 in the first quarter of fiscal 1995. Research and
development expenses for the first quarter of 1996 were $455,133 as compared
with $245,553 in 1995, and marketing costs were $53,355 in 1996 as compared with
$43,332 in 1995.
Net Loss. The net loss of the Company for the three months ended March 31,
1996 was $1,487,435 (0.11) as compared with $1,716,326 (0.16) for the three
months ended March 31, 1995. The Company expects to incur continuing losses
until significant quantities of the VideoLan System are sold.
Liquidity and Capital Resources
Through March 31, 1996, an aggregate of $1,700,699 has been expended in the
operating and development stage activities of the Company, principally for
research and development, salaries and professional fees. An additional $82,804
has been used to prepare the Company's patent applications and purchase certain
equipment. Additional funds will be necessary to pay for additional engineers,
technical people and increased marketing costs in connection with the sale of
the Company's products.
As of March 31, 1996, the Company has financed its operations primarily through
investments by its founder and individual investors, a private placement of the
Company's Common Stock completed in February of 1995, which raised net proceeds
of approximately $1,900,000, and from the net proceeds of the IPO which was
completed in August 1995. The Company expects that the IPO proceeds will be
sufficient to meet the Company's working capital, marketing, research and
development, engineering and inventory requirements for the balance of 1996.
Thereafter, the Company anticipates that sales of the VideoLan System and/or the
proceeds of research and development contracts will be the primary source of
working capital.
As of this date, the Company has no long-term debt or material commitments for
capital expenditures. The Company may need to obtain external financing as
inventory requirements increase. There can be no assurance such financing will
be available, which could materially adversely affect the Company's business.
The Company believes that, during the past year, inflation has not had a
significant impact on the Company's operating results.
12 of 14
<PAGE>
VideoLan Technologies, Inc.
(A Development Stage Enterprise)
Part II: Other Information
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports:
(a) Exhibits
None
(b) Reports
None
13 of 14
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VideoLan Technologies, Inc.
Date: May 15, 1996 /s/ Ted Ralston
--------------------------------------
Ted Ralston
Chairman of the Board
Date: May 15, 1996 /s/ Steven B. Rothenberg
--------------------------------------
Steven B. Rothenberg
Chief Financial and Accounting Officer
14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 42,542
<SECURITIES> 4,743,239
<RECEIVABLES> 58,464
<ALLOWANCES> 0
<INVENTORY> 1,253,717
<CURRENT-ASSETS> 6,278,615
<PP&E> 393,985
<DEPRECIATION> 51,188
<TOTAL-ASSETS> 6,759,746
<CURRENT-LIABILITIES> 650,799
<BONDS> 0
0
0
<COMMON> 138,845
<OTHER-SE> 5,934,912
<TOTAL-LIABILITY-AND-EQUITY> 6,759,746
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,555,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,356)
<INCOME-PRETAX> (1,487,435)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,487,435)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
